Perspective | A Brief Analysis of the Confusion Between the Shareholder of a Sole Proprietorship and the Company’s Personality
Published:
2024-12-17
The issue of the shareholder of a one-person company and the confusion of the company's personality is a complex and important legal matter, involving the relevant provisions of the Company Law of the People's Republic of China. Below is a detailed explanation of this issue, along with an analysis of related cases.
1. Concept Explanation
The confusion of corporate personality refers to the situation where a company, which formally has legal person status, becomes indistinguishable from its shareholders in terms of property, business, personnel, etc., leading to the loss of the company's independent civil liability. In a sole proprietorship, since there is only one natural person shareholder or one legal person shareholder, the shareholder has greater control over the company, making it easier for the corporate personality to become confused with the shareholder's personality.
2. Legal Basis
The Company Law of the People's Republic of China has clear provisions regarding the confusion of personality between sole proprietorship shareholders and the company. Article 63 states: "If the shareholder of a sole proprietorship limited liability company cannot prove that the company's assets are independent of the shareholder's own assets, they shall bear joint liability for the company's debts." This provision aims to prevent shareholders from using the company's legal person status to evade personal responsibility and to protect the legitimate rights and interests of creditors.
3. Identification Standards
When determining whether there is a confusion of personality between the shareholder of a sole proprietorship and the company, the following factors should be comprehensively considered:
1. Property Confusion:Shareholders use company funds or assets without compensation and do not make financial records; shareholders use company funds to repay their own debts or provide company funds for related companies to use without compensation, without making financial records; the company’s books and the shareholder’s books are not separated, making it impossible to distinguish between company assets and shareholder assets.
2. Business Confusion:Shareholders engage in the same business as the company, sometimes conducting transactions in the name of the shareholder and sometimes in the name of the company, leading third parties to be unable to distinguish whether they are trading with the shareholder or the company.
3. Personnel Confusion:The organizational structure and management personnel of the company and the shareholder are intertwined, i.e., "multiple signs, one set of personnel."
4. Related Cases
Case 1: The case of the confusion of personality between Zhongsenhua Investment Company and Zhongsenhua Real Estate Company.
Case Summary:
Zhongsenhua Real Estate Company was established by Zhongsenhua Investment Company to develop the Zhongsenhua International City project. From the beginning, Zhongsenhua Real Estate Company was actually controlled by Zhongsenhua Investment Company and its shareholders. Later, Zhongsenhua Real Estate Company became a sole proprietorship wholly owned by Zhongsenhua Investment Company. In the financing debts related to real estate development projects, Zhongsenhua Real Estate Company and Zhongsenhua Investment Company jointly promised to bear joint liability for the debts related to the real estate project.
Judgment Key Points:
According to the current Company Law, Article 23, if a company has only one shareholder and the shareholder cannot prove that the company's assets are independent of their own assets, they shall bear joint liability for the company's debts. In this case, Zhongsenhua Investment Company did not provide evidence to prove that Zhongsenhua Real Estate Company's assets are independent of its own assets, and the two companies should be regarded as the same responsible entity in law, constituting a confusion of personality. Therefore, Zhongsenhua Investment Company should bear joint liability for the debts of Zhongsenhua Real Estate Company.
Case 2: The dispute over the confusion of personality between Zhenrong Company and Zhongjing Company.
Case Summary:
As the sole shareholder of Zhongjing Company, Zhenrong Company claimed that there was confusion in finances, personnel, business, and operating locations between Zhongjing Company and Zhenrong Company, constituting a confusion of personality, and that Zhenrong Company controlled Zhongjing Company, manipulating its decisions, causing Zhongjing Company to lose its independence, thus Zhenrong Company should bear joint liability for Zhongjing Company's debts.
Judgment Key Points:
In this case, Zhongjing Company and Zhenrong Company submitted their respective audit reports issued by accounting firms and their financial management systems as evidence, proving that the two companies had established independent and standardized financial systems, with independent assets and liabilities. Therefore, Zhenrong Company has fulfilled its initial burden of proof regarding its assets being independent of Zhongjing Company. The objections raised by Zhongye Company were insufficient to reflect a financial confusion between Zhenrong Company and Zhongjing Company. Thus, after Zhenrong Company initially proved its assets were independent of Zhongjing Company, the court confirmed the evidentiary effect of the audit report submitted by Zhenrong Company, ruling that Zhenrong Company need not bear joint liability for Zhongjing Company's debts.
5. Consequences and Responsibilities
Once the confusion of personality between the shareholder of a sole proprietorship and the company is established, the shareholder will need to bear joint liability for the company's debts. This means that the company's creditors can pursue both the company and the shareholder as joint debtors. Additionally, shareholders may face legal sanctions and civil liability.
6. Preventive Measures
To avoid the risk of confusion of personality between the shareholder of a sole proprietorship and the company, shareholders should strictly comply with relevant laws, regulations, and the company's articles of association to ensure the compliance of company operations. Specific measures include:
1. Establish and improve the company's financial management system to ensure strict separation of company assets and shareholder assets;
2. Regularly conduct financial audits and risk assessments to timely identify and correct potential issues;
3. Strengthen the construction of the company's governance structure to ensure the independence and transparency of the company's decision-making process;
4. Adhere to business ethics and principles of integrity, and refrain from any actions that harm the company's interests and the rights of creditors.
In summary, the confusion of personality between the shareholder of a sole proprietorship and the company is an issue that requires high attention. Shareholders should strictly comply with relevant laws, regulations, and the company's articles of association to ensure the compliance of company operations; at the same time, regulatory agencies should strengthen supervision and law enforcement to combat illegal activities and protect the legitimate rights and interests of creditors.
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